HMV is alive and kicking

At a time when once-strong household names are becoming history overnight and others are searching for a rough guide to the new economic era, the music industry has woken up to the news that HMV is storming into the live music world in search of future growth. The majority of industry people have reacted with awestruck admiration.

The high street music and games retailer quietly announced its groundbreaking live music deal with Mama Group after the market closed last week.

The most immediate effect of the deal, in which the retailer paid almost £20m to Mama Group to form a joint venture company to run 11 of the latter’s venues, will be three iconic venues branded with the HMV logo.

The deal is unprecedented and is another sign that the strong brands that have historically made fortunes from the sale of recorded music know they must diversify to survive.

HMV’s move follows record label giant Universal’s move into live and merchandising rights via its deal with the Sanctuary Group in 2007, and Wembley Arena-owning live promotion company Live Nation’s move into signing record deals with the likes of Madonna and Jay-Z.

By facing down the music industry’s own recession, brought on by digital downloading over the past ten years, HMV has not only emerged triumphant on the high street (it saw off its last competitor Zavvi just last month when the former Virgin Megastores called in the administrators), it is now entering unfamiliar territory to compete on new fronts.

Digital downloads now make up the vast majority (96%) of singles sales, according to the National Charts Company, while the supermarkets and online stores are increasingly pushing music and games to shoppers at a lower cost than their bricks-and-mortar high street rivals.

Despite having seen off Zavvi and Woolworths, and buying the remnants of the collapsed Fopp chain in July 2007, HMV obviously feels it must engage with music fans’ wallets in different ways to achieve growth.

And, while the likes of O2 have added their names to music venues such as the London Dome and the Academy chain, under the joint venture HMV will actually run the venues, with three of the most iconic bearing its name.

So the venue that has hosted the likes of The Beatles and Queen will drop Hammersmith to become the HMV Apollo, and London’s Forum, which has staged every artist from James Brown to Radiohead, will become the HMV Forum. Similarly the Edinburgh Picture House will drop its geographical reference to make way for the retail brand.

“It’s a really smart move,” says Martin Talbot, managing director of The Official Charts Company and former editor of industry title Music Week. “Having seen off Zavvi, HMV is now the last man standing on the high street and, though this is not the most obvious step, it’s a natural move for HMV to position itself in front of the consumer, live, in the same way it does with recorded music.”

The retailer has also completed a parallel deal with ticket agency Seatem, so it will be able to sell tickets from its newly-owned venues and on behalf of other promoters via kiosks in its 379 stores, as well as its website. The move means that HMV could potentially strike a deal with an artist’s management or record label which will mean it controls the interface between fan and artist commodity, be it ticket, T-shirt, CD or even content such as online shows.

Former Andy’s Records marketing director and Tower Records consultant Billy Gray is philosophical about HMV’s success at the expense of his former employers. “This was always going to happen. HMV has shown it has the financial muscle to survive and it has seen off everyone from Andy’s to Fopp and now Zavvi. HMV is very good at playing the strategic long game and has built up an extraordinarily strong brand that people see as an authority on music. Now this deal gives it an extra frisson and makes it more exciting,” he says.

There are some that  privately query the wisdom of the deal when there are signs that live music’s recent sales bonanza has already peaked. However, 02 Arena owner AEG disputes the nay-sayers’ predictions.

“We sold 1.8 million tickets for the arena in 2008 and we expect to sell more this year,” says Paul Samuels, executive sponsorship director at AEG, whose most famous deal is with O2, which has naming rights to the hugely successful arena.

Samuels is another admirer of the HMV deal, saying that it reinforces AEG’s message that live music is where the growth is. “HMV has seen what other brands such as O2 has done and realised the future is in live music,” he says.

AEG is set to announce a large sponsorship deal this week for one of its other assets inside the former Dome, and predicts live music will act as a fillip for consumers denied more expensive treats in the downturn.

“People who can no longer afford to fly off somewhere exotic for two weeks will feel they can still afford to treat themselves to a night out seeing a favourite artist,” says Samuels.

However, City analysts are not paying too much heed to the deal, as the £20m cost and short-term return to a company worth £530m, with 2008/09 profits expected to hit £58m, is “unlikely to make much of a difference to the figures”.

Even so, the “brand leverage” opportunities are regarded as beneficial and any slower ticket sales due to the downturn are immaterial as this deal is a “mid-term bet”.

HMV marketing director Graham Sim is unsurprisingly elated: “I believe HMV has the brand heritage to place itself at the very heart of popular culture and to cut through all the different ways people can discover and enjoy music these days.”

He adds: “HMV can effectively become the one-stop shop for music and home entertainment across all channels. So if you want to buy the CD, download the latest single, access exclusive content, read the book, buy the T-shirt and get a ticket to see the band perform live, then you can do it all through HMV.”

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